07 April 2010 #Employment
The case of BSkyB Limited v EDS (now HP Enterprise Services UK Limited) was not under the radar of employment lawyers or HR professionals as, on the face of it, it seemed to have no relevance in the employment sphere. However, the judgment released in January 2010, which I am told by my colleagues in our Commercial and Technology department was awaited with bated breath in the IT sector, raises some interesting and topical employment themes which serve to encourage organisations to review their recruitment procedures.
The facts of the case
In March 2000, BSkyB issued an invitation to tender for the design, development and integration of a new customer relationship management (CRM) system which, once successfully implemented in its call centre operations, would transform the BSkyB customer-care experience and its customer-facing business. EDS won the tender, in what had effectively become a two-way fight with Pricewaterhouse Coopers, and executed a contract with BSkyB`s operating subsidiary Sky Subscribers Services Limited on 30 November 2000. The contractual baseline budget was around £50 million, and there was a two-stage timeline for integration: nine months for the first-stage go live and 18 months for full completion. The project did not go well. Full functionality of the CRM system was not completed until March 2006, by which time EDS had been removed from its role as systems integrator, continuing only in a basic IT supplier role. The total project costs stood at £265 million.
The main thrust of BSkyB`s case was that during the tender process, EDS` personnel made fraudulent misrepresentations which BSkyB relied upon to enter into the contract. The consequence of the Court finding that fraudulent misrepresentations were made, as opposed to innocent or negligent misrepresentations, is that the limitation of liability clause in the contract, limiting EDS` liability to £30 million, would not apply thereby paving the way for BSkyB to potentially recover the full extent of their losses, claimed at £709 million.
How does this case have relevance to HR?
BSkyB succeeded in establishing that one of the representations made by Joe Galloway, Managing Director of the relevant business division within EDS and "mastermind" behind the EDS bid for the BSkyB contract, was made fraudulently and that they relied upon that representation to enter into the contract.
The evidential burden in cases of alleged fraudulent misrepresentation is extremely onerous. It is not difficult to establish that a false statement has been made, but to go on to establish that the person who made the statement knew it was false is not easy, particularly as Courts start on the presumption that business people are generally honest.
It seems the critical factor which lead the Judge to find that Joe Galloway had made a fraudulent misrepresentation in the context of the tender process was the catalogue of lies that Mr Galloway told in the course of several days of his witness evidence in relation to a Masters degree he professed to having obtained through study from Concordia College, St Johns, one of the US Virgin Islands.
Mr Galloway went into great detail about his time in the US Virgin Islands whilst studying for the MBA. He claimed to have attended regular seminars, described the buildings in which these seminars took place, explained that he would travel from St. Thomas, another of the islands, to St.Johns by commuter plane and he even vividly described the view from the plane. He claimed to have been working on the US Virgin Islands at the time of undertaking his study for Coca-Cola.
Lead Counsel for BSkyB, in a display of skilful and poetic cross-examination, drew out that in fact the Masters Degree was a fake, a degree purchased on the internet. Counsel produced a degree certificate he had obtained from Concordia College`s website in the name of his dog, Lulu! What`s more, Lulu achieved better grades than Mr Galloway. It was also established that in fact there was no airport on the island of St. Johns and St. Thomas was only 2 kilometres away. One of the legal team representing BSkyB had visited St. Johns twice (nice work if you can get it) only to find that Concordia College did not physically exist. Furthermore, there was no Coca-Cola office on the island.
On the last day of Mr Galloway`s evidence he produced a text book which he claimed he had borrowed from the library at Concordia College. It did not take long for the Judge to see that the book bore a barcode, stickers and pencil markings which linked it with the library of Sanford-Brown College in Missouri near Mr Galloway`s current home.
The Judge had no hesitation in finding that Mr Galloway had a "propensity to be dishonest whenever he [saw] it in his interest, in his business dealings". He went on to say that this was "a significant factor which [he had to] take into account in assessing whether he was dishonest in his dealings with [BSkyB]".
Unsurprisingly, during the course of the hearing, EDS dismissed Mr Galloway.
So what HR lessons can be learnt from this case?
Well, prevention is always better than cure, so all organisations need to be taking steps to verify the information which is provided to them by candidates in CVs and/or application forms. Perhaps if EDS had vetted Mr Galloway`s CV they wouldn`t have found themselves in the position they did.
In a recent survey undertaken by The Risk Advisory Group, it was found that 75% of CVs contained inaccuracies. The top five lies were:
Furthermore, there is a noticeable trend of fibbing being on the increase as a result of the recession and consequent pressure on the job market.
So, what pre-employment checks should you carry out, are they lawful and, if so, to what extent?
The main legal consideration is of course the Data Protection Act 1998 (DPA). The Employment Practices Code of Practice available from the Information Commissioner`s Office website has a section on pre-employment checks which is worth familiarising yourselves with. As with most aspects of the DPA, pre-employment checks should be:
Essentially, these principles require a proportionate approach by employers.
In every recruitment process, employers should ensure that:
When recruiting for important roles (middle management upwards) or in particular occupations or fields, you should be able to justify further pre-employment checks.
For example, a pharmaceutical company that is recruiting for a research assistant who would be required to participate in animal testing, would be justified in checking candidates are not or have not been in the past animal rights activists.
Where further checks are desirable, organisations should:
There is of course a risk of a discrimination claim by an unsuccessful candidate based on discriminatory pre-employment vetting practices.
A job applicant can bring a claim against a potential employer for:
An example of a potential discrimination claim arising from pre-employment vetting:
An arms manufacturer receives an application for an engineer role from a man with a name which suggests he is of the Muslim faith. The employer decides to carry out pre-employment checks to rule out the possibility of this individual having terrorism links. Now, on the one hand, it would be justified to conduct pre-employment checks given the significant risk posed by employment within the arms sector. However, the potential discrimination risk here is the basis for the employer`s decision to vet this particular candidate. In the absence of a clear policy, implemented consistently, of vetting all candidates once they have reached a particular stage in the process, this applicant would have a strong claim of race discrimination.
So, what steps should be taken to minimise the risk of discrimination claims?
What about the situation where the employee`s lies are discovered once employment has already commenced; is it safe to dismiss?
Well, this will depend on how long the employee has been with you. If they are in their first year, the risk of an unfair dismissal claim is very low as the individual will not have unfair dismissal rights unless they fall within one of the excepted categories.
If the employee has reached the critical one year anniversary then unfortunately you cannot simply move straight to dismissal (when can you ever?). You still have to demonstrate that you have acted within the range of reasonable responses. So, the fairness of a dismissal of an employee who lied during the recruitment process, will depend on the following factors:
As a general rule of thumb, the more senior the employee, the easier it will be to justify dismissal in these circumstances on the grounds of loss of trust and confidence. Hence, given the damning findings of the Judge, I doubt very much that Mr Galloway would have much of an argument that his dismissal by EDS was unfair.